Monday, February 28, 2011

Nancy Folbre, writing in the Economix blog at The New York Times, in a post called “Revolt of the Cheeseheads,” is calling the Saturday rally in Madison, Wisconsin, a threshold moment in U.S. history, but for different reasons than the ones I spelled out after following the rallies nationwide on Saturday.

Folbre happened to be in Madison last week and had the opportunity to see the protest signs and posters firsthand. She was surprised, I think, to find that the protest signs summarized the issues at hand better than anything the news stories had been saying up to that point. In other words, it is the protesters who really know what’s going on, while the politicians, press, and pundits have been in a state of denial.

In the last two days we’ve seen news reporters correct some of their earlier misreporting. Some of the credit for that goes to Forbes, where columnist Rick Ungar set the record straight about the Wisconsin pay cut package in “The Wisconsin Lie Exposed – Taxpayers Actually Contribute Nothing To Public Employee Pensions.” That was on Friday, and late on Saturday the news coverage of the labor dispute in Wisconsin started to use the phrase “pay cut.” Corrections of other details are starting to creep into the news reports too. The people who have the clearer understanding of a situation tend to win out in the end, and with Wisconsin’s governor now fleeing the state in a state of confusion, he is giving up any chance he may have had to frame the debate.

If the people out on the street know what’s going on, we had better find out what is going on too. That was that message that has been starting to sink in in Madison, and after the rallies on Saturday, nationwide. To call this a “revolt” at this point is a bit of hyperbole, of course, but the effect of the new worker’s rights movement is just as revolutionary. The Saturday rallies, you may recall, were planned in just five days. In the next five days, more things will change. The people in positions of power are on notice now that if they can’t keep up with the tide of change, they will be left behind, forgotten.

Sunday, February 27, 2011

The bank-bailout regime is over in Ireland. It is hard to explain how big a political change the election represents. The political party that had led the government in Ireland almost continuously for 80 years, Fianna Fáil, lost 3/4 of its seats. It may be able to make a comeback in a few years, but this is a party where no one knows how to do that — it is in rebuilding mode for the first time in a lifetime, with most of its leaders voted out of office. For Fianna Fáil’s coalition partner, the Greens, the news was worse — they won no seats at all in the election.

The electoral changes are the direct result of the bank bailouts in Ireland and the subsequent European Union bailout package and austerity budget. Ireland is in dire financial shape after the bank bailouts. It is on the hook for possibly as much as €200 billion after an escalating series of attempts to keep all the major banks standing, a policy that failed in the end anyway. That is a lot of money for a country the size of Ireland, equal to almost 1 year of GDP.

If the combination of bank bailouts and draconian budget cuts was politically toxic in Ireland, it is not going over well in the United Kingdom either, and this pattern is something politicians in other countries will have to notice. It may be enough to dissuade politicians in the United States from attempting another round of major bank bailouts later this year if some of the largest banks continue to weaken.

Saturday, February 26, 2011

A rally of workers has a very different feeling than one populated by television viewers, for example. I didn’t see the same angry “get out of my way” crowd in today’s rallies that was so evident at many U.S. political rallies in the last couple of years. But you wouldn’t expect such a negative vibe from a rally populated by workers. Get a bunch of workers together, and they have the attitude and energy of finding a way around obstacles and getting things done. You can even see the difference in the body types of the protesters — not that obese people weren’t represented at all today, but the crowds I saw seemed to have about a 5 percent obesity rate, conspicuously below the national rate around 25 percent. The most reliable way to counter obesity, of course, is exercise — which, until a couple of generations ago, was known simply as work.

Perhaps a million people turned out for today’s hastily organized rallies in support of worker’s rights, held in about 100 cities around the United States — half union members, but virtually all, people who see themselves as workers. You look at them and you say, “This is a group that could really do something — that could build a nation, for example.”

The success of a nation does fundamentally depend on making good use of the energy of people who are eager to work. The United States has had a dismal record at this in recent years. Only about 3 out of 4 workers have real jobs because of the recession. People who do have jobs work in frequently stifling environments that often don’t encourage the direct, obvious solution to a work problem. Far from empowering workers, parts of the government seem intent on creating new obstacles for workers. That point, of course, was the subject of today’s rally, as people turned out to oppose a Wisconsin bill that would clamp down on collective bargaining in that state and add piles of unnecessary paperwork and red tape to any labor union that would still be allowed to exist under the new rules.

The corporate news media paid little attention to the rallies, but no matter — photos, video, and live accounts are pouring in from people on the street and are easily found online. The new citizen-based mass media represents, if you think about it, a kind of immediacy and productivity that the corporate world, with its committees, rules, layers of management, and often conflicting objectives, will never be able to match. Another example of this I witnessed today was a songwriter who, earlier this month, wrote a song that seemed like it was written for the problems in Wisconsin (though it was actually based on events elsewhere). The songwriter recorded the song this afternoon and put the record online, so that people were listening to it on their way home from the rallies. Compare that to the “rapid response” committees or “crisis teams” that, in the corporate world, hope to deliver their results within a couple of years. Part of the reason we were seeing so much vitality and energy at today’s rallies was that there were hundreds of thousands of workers let loose from the constraints of daily work and able to just do something of importance.

It is a rule of political economy that wherever productivity goes, power follows. The corporate world is meant to foster productivity, but it is rapidly becoming the opposite of this — it is becoming an obstacle to productivity. If we get to the point where workers find ways to become more productive by working outside of the corporate system, then the power that corporations currently enjoy will fade, and this transition might happen rather quickly — too fast for some of those “crisis teams” to write their reports on what the corporations need to do to respond.

Friday, February 25, 2011

The U.S. banking system became legitimately profitable in the fourth quarter of 2010, but the financial condition of the industry is still bad news. It is a rare bank at this point that is profitable in an investment sense; most are bringing in enough money to keep going, but aren’t making the kind of profit that would draw capital away from other investments. One measure of this is the interest rates banks are paying on savings accounts — still averaging well below 1 percent, and more importantly, now well below the rate of inflation. Another sign of trouble: one of the reasons banks are becoming more profitable is that the amount of lending they are doing is falling. That strongly suggests that banks will be more successful in the current economic circumstances if they lend even less than they are lending now. Less lending, of course, means fewer jobs for bankers. But the worst news is that there is little sign of troubled banks returning to profitability. Instead, the financial condition of about one sixth of banks, already in poor condition at the beginning of 2010, just got worse as the year went along.

It is the perhaps the most challenging time for banks in the history of banking in the United States, as they go from crisis to malaise in a period in which the industry as a whole is overbuilt by about 25 percent and massive technological changes are on the horizon. Historically, it has been hard for a struggling business to get ahead in a declining industry, but if all the banks that are on the brink now fail over the next three years, this will be the largest episode of bank failures ever.

Now, the good news: banks have been closing branches. The pace of branch closings is slight, and some areas are being left without a banking office, but in most cases, a branch closing now means fewer that will have to be closed in distress or liquidation later. With the real estate lending business shrinking and banks losing their competitive position in it in the coming years, the financial justification for bank branches will mostly evaporate, so it won’t be a surprise if half of the bank branches in the United States close or move into supermarkets within the next seven years.

The FDIC is convinced that the number of bank failures will be lower this year than it was last year. It also says the total assets of failed banks will be lower, but that is an easy prediction to make if you are looking at the smaller and medium-sized banks. The troubled banks’ assets continue to shrink with every foreclosure and every loan that has to be written off.

The parade of Illinois bank failures continued at closing time tonight, with state banking regulators closing Valley Community Bank, on the western fringe of the Chicago metro area with five branches around St. Charles, Illinois. The bank had $124 million in deposits. Its assets had shrunk to an amount smaller than this.

The bank had worked out a deal with investors for additional capital in 2009, but the deal fell through. The extra money would not have been enough to save the bank anyway. The bank spent last year searching for investors without success.

Illinois-based First State Bank is taking over the deposits and purchasing the assets.

Thursday, February 24, 2011

The civil war in Libya, as strongman Moammar Gaddafi attempts to retake control of at least the capital city, saw Libya’s oil and natural gas production fall by at least one fourth on Tuesday and at least three fourths by yesterday. Some insiders believe Gaddafi will be able to sabotage oil fields. This puts world oil production down by 2 percent for several days or weeks, or in the worst case, for a year or longer. That is a possibility that has already sent world oil prices above $100 for the first time since 2008. Oil prices were going to pass $100 this year anyway because of economic expansion in Asia, Europe, and South America. It may have happened early because of the war in Libya, but prices may simply stay up even if Libya’s problems are resolved quickly. The northern temperate zone planting season, with its prodigious use of diesel fuel, is coming in just a few weeks, and then the summer driving season which annually drives up U.S. demand for motor fuel.

We knew all along that the recession’s retreat in energy prices was temporary, and that we would have to climb out of the recession with oil prices at least as high as they were before. World oil consumption is higher than it was when prices were at $120. Production has been able to keep up with the increasing demand until this year because of the global economic recession, but from here forward, with economies expanding, production increases will fall farther and farther behind the increase in demand, resulting in higher prices not just for oil and gasoline, but for all energy sources.

In the United States in the short term, gasoline prices will be going up to about $3.45, perhaps as soon as next week. In a matter of a few years, we will pass $6 a gallon for gasoline, a point at which the cost of fuel for transportation and heat will put millions of people into poverty. U.S. policy on this issue for the last two years appears to have been based on the hope that oil prices would stay artificially low for several more years. The window of opportunity that low oil prices have provided is closing already, and it is hard to say that we have made much use of it.

Wednesday, February 23, 2011

It is too early to sum up this year’s North American flu season, but so far, it is even more unremarkable than the previous one was. In 2009–2010, there was a lot of hype about H1N1 flu, but the peak of the infection had already passed in August, long before the beginning of the normal flu season. Then, the flu season itself was about one third lighter than an average flu season, based on both anecdotes and official statistics.

This season too has been unusually light, and some pathologists and epidemiologists believe this is not a coincidence. People who are known to have contracted the new H1N1 virus have had a much lower incidence of flu ever since. About one third of U.S. residents, and probably similar fractions in other North American countries, contracted H1N1 flu, even if they didn’t show symptoms. That’s an extraordinarily high infection rate for a virus that struck in the late spring and summer. The high infection rate of H1N1 led to thousands of deaths at the time, but now means there are a lot of people who have taken on some kind of new immunity to flu — so H1N1 has actually meant fewer flu deaths in the end.

Studying the virus itself, researchers say there appears to be something about it that lends immunity to a range of flu viruses, including many of the viruses in the record of the last century. If the researchers can pinpoint it, they may be able to use this particular feature of the virus to make a more broadly effective flu vaccine. It is important to note that the part of the virus surface that they are searching for is not something that is found in the existing H1N1 vaccine. People who received the vaccine, but who did not contract the flu, did not receive the additional immunity that H1N1 provides.

It can now be said that the tens of thousands of people who intentionally infected themselves with the H1N1 virus — a trend that was particularly strong in the United Kingdom — guessed right somehow. That’s a strategy I certainly would not want to encourage in the future, but it is curious that a crowdsourced answer to H1N1 turned out to be a more successful strategy than most of the measures public health experts were putting forward. I have to think there is a reason it worked out that way in this case, and surely someday scientists will have at least a guess of what that reason is.

There are other, completely unrelated efforts that also promise to produce a more effective flu vaccine, and there are several treatments being tested that may treat the virus after it has infected the body, when it is too late to use a traditional vaccine. One way or another, we may shortly have a partial answer for flu that is more effective than carefully washing hands and hand-contact surfaces all winter long. Even something that is only marginally effective can take the punch out of an epidemic by reducing the number of people available to transmit the virus to other people. So possibly, in a few years, flu may not be the fearsome force of nature that shadows most of us every winter season.

Tuesday, February 22, 2011

Supporters and detractors of Libya’s self-appointed king Moammar Gaddafi were shaking their heads at tonight’s speech, and at many of the same lines. Gaddafi said Libya was heading into a civil war, a war he predicted would be brutal and deadly, likely even to himself. At one point, he declared that people who violated the country’s constitution would be gunned down mercilessly. As Gaddafi himself has never made much of a pretense of following the constitution, this remark was widely interpreted as Gaddafi calling for his own summary execution. The speech only went downhill from there. He declared that the younger half of the nation’s citizens were all under the influence of foreign drugs. By the time Gaddafi, speaking on video, got around to declaring that Libya would continue to be the “pinnacle of the world,” it was over. Everyone could tell that the leader of Libya’s collapsing government was a madman. His strongest supporters were privately urging him to resign, while publicly declaring that they work for the people of Libya, not for Gaddafi. By now, for all we know, Gaddafi is already on his way across the Mediterranean to a retirement in some other country.

The popular uprising that has apparently brought down the government of Libya comes just weeks after similar events in Libya’s more prosperous Mediterranean neighbors, Tunisia and Egypt, and amid rumblings of similar events in countries as far-flung as Syria and Yemen, not to mention Wisconsin.

It is easy to see why these changes are happening. The corrupt governments that secretly divert a fraction of a nation’s wealth to private interests benefit hardly anyone. The question that is more difficult to answer is, why is it happening now? Surely part of the answer, and perhaps the whole answer, is that the money that has been propping up these corrupt regimes all these years isn’t there anymore somehow.

In other words, we’re not just seeing the decline of the Oil Kings, but of Oil itself. It’s no secret that the cost of extracting oil has been going up year after year as the easier oil fields are exhausted, or that the world’s largest oil companies aren’t sitting on the piles of cash they were enjoying just a few years ago. Perhaps the oil profits are no longer high enough to prop up national governments that are otherwise ineffective. Looking at oil’s place in the world more broadly, with oil production leveling off, it can hardly expect to maintain the prominent position it has held in the world for the last quarter century, running the White House for eight years, dominating the national politics of a tenth of the world, and figuring prominently in the most expensive war of that period.

If the oil industry is no longer rich enough to prop up the oil kings, it is fair to guess that a great many other things will also change. “America’s love affair with the automobile” was paid for with oil money, and that too seems to be falling by the wayside. The centralized control of the electric grid that served to squeeze out small-scale and intermittent sources of electric power may also be coming to an end. There will surely be other changes of equal or greater significant that aren’t so obvious yet.

Monday, February 21, 2011

I will never forget the shock I experienced last fall when I saw a respected nutrition researcher attempt to explain away previous studies that clashed with many of his findings. That scenario, with scientific studies pointing in opposite directions and researchers disagreeing, is to be expected, but the researcher was not merely trying to point out the limitations or possible errors in the earlier studies. Rather, he was trying to discredit the entire field of epidemiology, in which the studies were done.

Without going into the whole story, this was a substantive scientific conflict. Clinical observations suggested that certain nutrients cured certain diseases in about half of cases, a highly impressive result. However, all epidemiological evidence says that foods containing the nutrients cause more illness than they cure and result in people dying sooner. If both are true, this merely means that for the average person, the treatment is worse than the disease. That would hardly be a surprise — the main reason we don’t apply medical treatments to people of average health is that the intervention is likely to make them sicker — but it is nevertheless a conclusion that can be debated. One would hope, though, that the debate would go on in a scientific way, that it would not immediately degenerate into a scientist in one field trying to debunk an entire field of science that he happens to disagree with at the moment.

Alas, when the debunkers come out, it is usually science that is their intended victim. This is confusing because most debunkers present themselves as scientists or friends of science, yet scientific experiments and demonstrations are not their tools of choice. Rather, they argue. The essential argument of a debunker is something along these lines: “The events these people claim to have observed could not have occurred because of the principles of science.” They use scientific dogma to explain away experimental results and real-world observations.

If you are familiar with the process of science, you quickly realize that if debunkers have their say, there won’t be any science in the end. Scientific principles are supposed to be created and supported with observation and experimental evidence. If experimental evidence can be selectively explained away, then anything at all could be established as a scientific principle. If we ever get to that point, with certain points of view held to be infallible, science will have turned into a religion. Thus, debunking and science are generally at odds with each other.

Strangely enough, the winter season currently winding down in North America has also been a debunking target. “There is nothing unusual about this winter’s weather,” the debunkers tell us. “It’s winter. It’s supposed to be cold and snowy.” Notice the familiar pattern of debunking. There is an appeal to science, in this case, the climatological profile of North American winters, in order to discredit actual observations.

The attempt to debunk the winter of 2010–2011 doesn’t stand up even when you look at the days of weather observations one by one and note the many records set: the coldest temperature ever recorded in some places, the deepest snowfall of any single storm in others. But the distinct nature of the winter season jumps out at you when you look at the season as a whole using statistics. These are statistics anyone can compute, such as the total snowfall for the season (by location, of course), the average temperature for the months of December and January, and the number of “epic” U.S. winter storms (count them: 3). Those who would try to debunk this winter’s weather are left in the uncomfortable position of trying to debunk the field of statistics.

That’s an obstacle that would stop any sensible person, but there is nothing very sensible about debunking in the first place. Debunkers, after all, are the people who go to talk to people who have seen something extraordinary and explain to them that what they observed could not have taken place. It’s not something you can do if you believe in obstacles. Therefore, it’s not so surprising if you see a debunker take on, and try to take down, the idea of statistics.

This is happening, for example, among the bedraggled supporters of the global climate stability hypothesis, which essentially says that climates don’t change, at least not by very much, and not for very long. It is fair to describe this group as climate change debunkers, as there really is no observational support for the idea that climate cannot change. We see the weather change every day, and historical records are clear enough about weather patterns changing from one century to the next. If you don’t believe in records, you can go to places where the permafrost is melting and directly observe climate change taking place. But the idea of global climate stability hangs on, supported by a sort of “common sense” notion that Earth is too large to have the kind of change that would show up as climate change. As always in debunking, there is a scientific principle to support this idea. We know from experience that the larger something is, the slower it moves. It takes more people pushing to move a heavier car, a longer time to boil a larger pot of water. The experience of homeostasis, another idea verified by science, also supports the idea of climate stability.

But this only means that climate stability is a reasonable hypothesis, not that it is true. With observation telling us that climates are stable only in select places and for limited periods of time, supporters of the global climate stability hypothesis have decided to try to debunk the statistic of global average surface temperature. Unfortunately for them, they can’t undo this statistic by questioning its assumptions. Global average surface temperature is a highly robust measure, resulting in much the same picture no matter how you mess with the assumptions and methodology along the way. The only line of argument left is to say that statistics in general aren’t particularly meaningful, and these days, it is easy to find adherents of the global climate stability hypothesis saying just that.

This is what all debunking comes to in the end. When discounting individual observations is not enough, you have to start throwing out pieces of the scientific method one by one until you are taking a stand against all science. It’s worth noting than many of the most famous debunkers have given it up after a number of years. There is one who continues his stage performances, but now uses them to teach his audiences some of the phenomena of perceptual psychology. It is almost a complete turnaround, from “There is nothing to see” to “Here is how to observe carefully.” Without knowing any of the individual stories, I can only guess what might happen to make a person turn from debunking to science. There is a predicament that every debunker will inevitably face, sooner or later: a group of people with a story so credible or a demonstration of a phenomenon so inexplicable that the debunker cannot even convince himself that nothing happened. These people clearly experienced (or demonstrated) something, but what? Then, or separately, debunkers may start to own the scientific garb that they present themselves in, or they may be taken with natural human curiosity, and start to ask scientific questions: “What is really going on? How can it be proved or demonstrated?” Once you start asking questions, of course, you are making the move from debunking back into science.

Sunday, February 20, 2011

In a new interview, James Redfield, author of the new book The Twelfth Insight, had some useful insight to offer on the Taco Bell beef suit and other recent events. The way to interpret the Taco Bell case, he suggested, is not so much that people are demanding beef, but that we are collectively starting to notice the value of clarity and authenticity. In other words, why can’t Taco Bell and everyone else just tell us honestly what they are doing, when it is something that involves us?

What that is is a reflection of this Twelfth Insight motivation to expose all these lies and to get back to an honorable way of commerce and food production. That will be driven as people understand that these chemicals in these foods, they’re really pulling us down. Some people think that human culture has lost 20 points of intelligence in the last 20 years, and I would argue that it’s the food.

Beyond food, Redfield believes the current chaos in world politics and commerce is helping to prompt a new degree of awareness of the distinction between authenticity and corruption.

Some of it is coming from the fact that, the reason I want to do this is that something has to be done. The world is getting really strange out there. And one of the things we’re really looking at and sensing is that the world is terribly corrupt at every level: government, the way people in the United States and other governments talk to each other, the way politicians interact, how corrupt they are, how they’re so corrupt they don’t even think about hiding it anymore. And our reaction is, “That’s not right, there is an authentic way in life. This is the way I can do it based on holding a higher truth about things.” That’s the feeling, that’s that urge that we have to reform.

Saturday, February 19, 2011

It is human nature to be able to work — but if this is the case, where does poverty come from?

At the risk of generalizing, poverty is the result of obstacles. If poverty persists in a community, it can only be the result of institutional obstacles — because personal obstacles would not affect an entire community over any period of time.

I’ve tended to focus on the connection between official corruption and poverty. You don’t find impoverished cities in the United States, for example, without finding that important figures in the local government are allowing their work to be affected by bribes or personal interest, or diverting the public wealth in one way or another. But it doesn’t particularly matter what the obstacle is. If you combine enough obstacles, any combination of obstacles can put a person in, or at least close to, a state of poverty.

Cultural assumptions are another important source of institutional obstacles that can affect a community all at once. If you think about it, official corruption couldn’t take root unless there was a culture to support it, with maxims such as “go along to get along” and “You can’t fight city hall.” Folklore about the nature of work and value can influence the material success of everyone in a place who buys into the local story. It is fair to guess that culture has become an obstacle in any town where dissidents and outcasts tend to be doing better financially than community leaders, or where the people who leave town are more prosperous after a decade or two than those who stay.

I don’t mean to sidestep the issue of personal obstacles, either. Illness, lack of skill, or a pattern of being angry about work can easily make one person less successful than another. At the same time, it is a mistake to look too hard for personal obstacles when it is obvious that the real obstacles are the ones that affect an entire community. You can always find flaws in a person. The more prosperous and successful a person is, the more legendary their flaws are. Telling people who are having difficulty achieving success to go look in the mirror is sometimes the right answer, but sometimes it is a way to distract whole groups of people from the corrupt institutions that are profiting at their expense.

Friday, February 18, 2011

Two more banks failed in Georgia tonight, along with two in California. Georgia state banking regulators closed Habersham Bank in the north end of the state, and Citizens Bank of Effingham, in the Savannah area.

Habersham Bank’s $340 million in deposits and eight branches are being taken over by South Carolina-based SCBT, which will be keeping the Habersham name and operating its new branches as a new Georgia-based bank. The failed bank had opened in 1904 in Clarkesville. By the end, a third of its assets were troubled loans and foreclosed real estate. A year ago, SCBT had acquired the assets of Community Bank & Trust, which had a similar history, but was more than three times as large.

Citizens Bank deposits and assets are being purchased by HeritageBank of the South.

In California, the OTS closed San Luis Trust Bank, which had $272 million in deposits. The failed bank’s loan losses included $1.8 million in loans to a failed local nightclub, which is set to go up for auction this month because of unpaid real estate taxes. First California Bank is taking over the deposits and purchasing the assets.

Farther north in California, state regulators closed Charter Oak Bank, in Napa. Local competitor Bank of Marin is taking over the deposits and purchasing some of the assets.

Thursday, February 17, 2011

The underlying problem with advertising is that businesses want more attention than consumers are willing to give. Direct communication between the business and the consumer is not necessarily a solution. A quick look at the scale of the problem will tell you that just getting the messages through is not necessarily enough. Consumers do not have the capacity to receive all the messages that businesses would want to deliver.

In the United States, new business establishments form at the rate of 1 million per year, or one every 30 seconds. If each new business sent just one message to each consumer — just to let people know that they exist — any consumer willing to receive these messages would get messages all day long, faster than they could read them.

The increasing importance of one-to-one commerce means that businesses cannot even expect to maintain an ongoing dialog with their actual historical customers. If a consumer purchases products from just 1,000 sources over the course of a year, regular updates from each of those businesses would add up to a minimum of one message per hour — more than enough to be an intrusion on a person’s life and work.

This issue is often framed in terms of the limits of e-mail, but it is not really about the e-mail medium specifically. No matter what mechanism is used to deliver the messages, there are more messages than a person is capable of taking in. People have no choice but to tune out most of the commercial messages they receive, regardless of the way the messages are delivered. And businesses cannot take for granted the ability to send messages, even to their active customers.

Wednesday, February 16, 2011

Now that is finally here, the Borders bankruptcy filing doesn’t tell us much about the direction that book business is going in.

At least we are learning a little about the management errors at Borders that led it into bankruptcy. It had the astonishing bad luck, if you can call it that, to be fully leveraged and expanding rapidly in 2007 just as the global economy was staggering into the stupor that followed. Some of the new Borders stores that were built in 2008 never opened, and now, in bankruptcy, Borders has the opportunity to close half of its stores and cut its footprint in other ways.

Borders says it will close around 200 stores, less than a third of its total, between now and next month. My hope is that this merely reflects the plan that Borders had to draw up to get into bankruptcy and secure working capital for bankruptcy. Now that it is in bankruptcy protection, it might well find that this is a good time to close more stores. In bankruptcy, a retailer can almost always revoke a lease on a store, regardless of the date the lease was set to expire.

Most of the news stories about Borders this morning are discussing the decline in the book industry, with revenue falling by around 5 percent last year compared to the year before. But it was bad management decisions and bad financial management, not a declining demand for books, that led Borders into bankruptcy. Worse, its reorganization plan doesn’t particularly address the changing dynamics of the book business. Instead, the new business plan for Borders is written as if it were still 2007. I suppose much of the plan might actually have been written in 2007, as Borders has been limping along paycheck-to-paycheck for quite some time, unsuccessfully putting itself up for sale along the way. But the book industry has changed so much in the last four years that a plan drawn up for 2007 is certain to fail in 2011. Borders will adjust its plan in the coming weeks, of course, but the fact that it is looking back more than it is looking forward tells us that Borders’ financial strain has made it irrelevant to the future of books. It can try to keep up with the book business, but it won’t be showing us where things are going.

The Borders bankruptcy is little consolation for its competitors in the book business. Barnes & Noble in particular has to be concerned about the problems at Borders. Barnes & Noble took on its current form largely by copying elements of Borders’ business model, so if this business model ultimately didn’t work for Borders, it may not work for Barnes & Noble either. Nor can independent booksellers hold much hope of picking up customers that Borders is leaving behind. Customers who complained in recent months about the austere look of the shelves at Borders are likely to find the stock at the average independent bookstore positively disheveled. At the beginning of the year, some observers were predicting the collapse of the major book chains this year; others insisted it was the independent bookstores that couldn’t possibly survive. Events so far are consistent with both predictions. If book sales decline by another 5 percent this year, the closing of 200 or 300 stores in the Borders bankruptcy is not enough for the book business as a whole to keep up with that decline.

The loss of 200 stores in two weeks, though, is just large enough to be noticeable on the scale of the national economy. Thousands of workers and millions of square feet of retail space will be added to the idle productive capacity of the economy, adding to the downward pressure on wages and rents, and indirectly leading to more foreclosures, lower real estate values, and other measures of a stagnant economy.

Monday, February 14, 2011

A fascinating detail emerged from the popular uprising in Egypt. At Tahrir Square, the focal point of demonstrations in Cairo, among the many people who stayed behind after the government had stepped down were several hundred people cleaning the square, and repainting. It’s a way of “claiming their space,” as one reporter put it. Cleaning up is a conspicuous symbol of change in a place where the government was never able to keep the square clean.

It also serves as a sign that the culture war groups that had a hand in starting the demonstrations in Egypt weren’t the people who finished them. As in the United States, the culture war groups that have been harassing cultural figures in Egypt for years are mostly made up of men over 40 years of age. If you’re younger than 40, it’s hard to relate to the vision of turning back the clock to an imaginary version of the past. But the cleanup crew in Tahrir Square was made up of people in their 20s. This suggests that they were simply citizens seeking a legitimate government for their country, a point that activists have been pressing on Twitter for a couple of weeks.

Sunday, February 13, 2011

Add one more weather event to the list of reasons why world grain prices are going up: cold weather may have ruined a fourth of Mexico’s corn fields.

The government estimates that 16 percent of the annual corn crop may have been lost because of the recent freeze, an unusual event in February in Mexico. However, officials believe many of the fields can be replanted, which would reduce the losses.

Grain crops were hit with a series of extreme weather events last year, including the fires in Russia and floods in Pakistan, and it appears that trend is continuing. In the United States, it is the winter wheat crop that was damaged last week by heavy snow and cold. The extent of the crop damage won’t be known until the snow melts, but commodities traders are anticipating losses of 10 percent or more.

Saturday, February 12, 2011

A great deal of the food advice you hear is based on the assumption that there is one way of eating that is best for everyone. This “one diet” assumption is wrong for reasons that I will explain here. A slight variation on this approach asks you to determine the best thing for you to eat based on your body composition or your genetically determined biochemical tendencies. This at least recognizes that not everyone has to eat the exact same things, but it is subject to the same shortcomings as the “one diet” approach.

The problem with the “one diet” idea is immediately evident if you imagine 7 billion people all switching to the same food choices simultaneously. If you accept the premise, for the sake of discussion, that the ideal diet prominently features avocados and mushrooms, there simply aren’t enough avocados and mushrooms for everyone in the world to have some. The world’s avocado production is about 5 million tons, enough to provide 2 avocados per person — per year. Mushroom production is similar in magnitude, enough for each of us to eat about one mushroom every four days. If our diets depended on avocados and mushrooms, or any combination of “ideal” foods we might choose, we would all go hungry.

And in fact, a quarter of the world does go hungry at some point during a typical week. About one person every three seconds dies of starvation, and for these people, any discussion of an “ideal diet” is missing the point. You can only eat what you can get. And the same considerations apply to nearly all of us in varying degrees. Depending on where you are and what resources you have, some food items are easier to get than others.

Personally, I am a big fan of pumpkin as a food. Pumpkins grow within walking distance of where I live, so I have a near-ideal experience as a purchaser of pumpkins. I pay hardly anything for a big, heavy pumpkin, and it is as fresh as can be. In other regions, people may have the same experience with a different crop — pineapples, peppers, or rice, perhaps. If you live among pineapple fields, it is probably hard to imagine that a pineapple could cost as much as a pumpkin, but that is what I find here.

Of course, it is not just a question of your local agriculture. The money you have to spend, your access to food distribution, and your cooking abilities all play into your food choices, along with many other factors.

Some experts cite ideas of human history to support their “one diet” proposals, and this too is a mistake. The actual story of food in human history is that the people and nations that adapted to the food that was available to them were the ones that were most successful. There is no story of an ancient tribe that scoured the world searching for the ideal diet. What records we have of successful primal diets show a wide variation between one climate and another.

Some of the “ideal” diets that I have heard about would have a person spending $35 a day on food, or more. That is millionaire territory — $35 a day adds up to $1 million in a lifetime. And it is, in my opinion, unnecessary. Most of us, if we have kitchens to work in, still have plenty of ways we can improve the food we eat by spending less money. If we want to upgrade our diets, we may as well start there.

Friday, February 11, 2011

Before the current bank failure episode got rolling, some of the more pessimistic analysts in the banking industry were predicting about 200 bank failures in the United States. The consensus now seems to be that there will be 200 to 500 more bank failures, in addition to the ones that have occurred already. The change in forecast is easily explained. At first, we were looking mainly at the risk of losses from “subprime” mortgages, including the subsequent securities, and the early estimates were based only on this one risk. This was expanded to include risks from all categories of mortgages. The main risk to banks now, though, is commercial real estate, and most bank failures since 2009 have been precipitated by loans in this category. Going forward, a few additional bank failures will be the result of bad business loans.

With so many banks failing, is it possible that we will run out of banks? No, not at all. At this point, only a small fraction of banks appear to be at risk. But even if most of the banks were to fail, they could easily be replaced. Setting up a new bank is a simpler proposition than setting up most other businesses. As evidence of this, you don’t need to look any farther than the high proportion of recent bank failures that have occurred among banks founded between 1999 and 2007. If through some calamity we found ourselves with no banks at all, it would take no more than a couple of weeks to set up new banks that could clear checks and process payments.

The state of Oregon is talking about setting up its own bank as a way to save money. Just the work of payroll checks for state employees is probably reason enough for a state to operate its own bank. The debate at this point is not so much about whether Oregon can or should create its own bank, or whether it can save money that way, but about the form the new bank should take: a full-service commercial bank using one of the bank buildings recently vacated in the state capital, or something less?

Since the failure of mortgage companies Fannie Mae and Freddie Mac, both companies have been kept going by the U.S. government, but no one has been able to explain why. Now change may finally be on the way. A report released today by Treasury, Reforming America's Housing Finance Market, recommends that both companies be wound down, and that the U.S. government’s other home loan programs be scaled back to a fraction of their current size. Fannie Mae is already shrinking its portfolio by almost 10 percent per year, and the report implies that this decline will continue and perhaps go slightly faster, even before Congress acts.

Today’s news headlines say that the report lays out three options, but for all practical purposes, it lays out only one road forward, and not the one that the government is likely to take. The proposal laid out in the report’s “Option 1” and “Option 2” calls for private investors to purchase mortgage-backed securities. In “Option 2,” the government would plan to step in to stabilize the housing market “during times of crisis.” “Option 3,” which calls for the government to backstop the country’s real estate market, is financially and politically unworkable on its face. The “catastrophic reinsurance” would put the government on the hook for real estate values to the tune of several month’s worth of GDP, payable only when economic disaster strikes. This fictional insurance — obviously, it could never actually be paid — would effectively subsidize all the real estate in the country, and it would lead to a national bankruptcy during a future economic recession. I don’t believe this option is meant to be taken seriously, but to steer politicians toward the space between “Option 1” and “Option 2.” Yet the actual path forward will have to be something different. The United States mortgage market will need an approach that involves a reduced reliance on mortgage-backed securities, which, as everyone recalls, helped to trigger the sharpest economic decline in the country’s history.

The government has already lost more than $100 billion on the Fannie Mae bailout, and the new report confirms that no one has a plan to earn that money back. Rather, substantial additional losses are to be expected as Fannie Mae is wound down.

What will happen to the mortgage business without Fannie Mae and Freddie Mac? The small down payments of the last 15 years will also be going away. Analysts are saying today that workers with steady employment histories will need to pay 20 percent of the price of a house in cash, and for freelancers and business owners, that might be more like 40 percent. (There will still be government support for loans for small farms.) Another very noticeable change is that mortgage rates will have to increase to better reflect the actual costs and risks involved in home mortgages. Rates for 30-year mortgages may go up by 1 to 1.5 percent, some analysts think. This, in my opinion, will price ordinary banks out of the mortgage business, a change that may come as a shock to many banks that have come to expect that home mortgages make up half of their revenue.

Banks, with the help of Fannie Mae, have thoroughly dominated the mortgage business in the last 12 years, but direct lenders and investors will have greater influence in the new mortgage business. One scenario is that investors set up a clearinghouse, similar to a stock exchange, and use it to make loans directly to mortgage borrowers. Banks or other local offices would do most of the underwriting work, but would earn a commission only for loans that are ultimately paid back. The investors, or their advisers, would make the final decisions about which loans to fund. This approach would create dozens of new issues for real estate brokers and regulators to consider. Alternative scenarios would create a lending environment even less like that of the past three decades.

The FDIC is confident enough that bank failures have peaked — in California, Arizona, and Nevada, at least — to announce the closing of its satellite office in Irvine, California. The office was originally authorized for three years and will shut down at the end of this year.

Bank failures continued tonight, with one in California. The OCC closed Canyon National Bank, with three locations around Palm Springs, California. The failed bank had $205 million in deposits. Pacific Premier Bank is taking over the deposits and purchasing the assets. Unlike most such arrangements, the FDIC is not sharing in losses on any of the assets. The purchase allows Pacific Premier Bank to extend its branch network east into Riverside County.

Elsewhere tonight, banks were closed by state regulators. In Michigan, it was the century-old, Hamtramck-based Peoples State Bank that realized, when it put its financial numbers together in January, that its net worth had gone negative in December. A bank isn’t officially allowed to be in a negative capital position, so its closing tonight does not come as a big surprise. It reported a loss of $18 million in 2010, and had $390 million in deposits and a similar amount in assets at the end of the year. The bank had continued to pay dividends up until two years ago, even though it was well on its way to financial ruin at that point.

First Michigan Bank is taking over the deposits and purchasing the assets. First Michigan Bank is promising “it will be business as usual” at the 10 former Peoples State Bank branches, but hasn’t yet determined whether it will be able to keep all 10 locations open in the long term.

Thursday, February 10, 2011

Higher gasoline prices mean higher corn prices, as more ethanol made from corn is used in place of petroleum in motor fuels. The volume of ethanol production is the highest it has ever been this month, and this will increase more as gasoline prices edge up gradually toward $5 a gallon. Eventually, we will likely see a return to the problems that plagued the world grain markets in 2007. This may be already on the way, with U.S. corn prices twice what they were last year and the Department of Agriculture warning yesterday of the lowest corn stockpiles since 1996. The low corn inventory is no cause for alarm, as the new corn harvest is coming in a few months, but it is an indication of the direction the market is going in.

The higher grain prices will lead some experts to call for the corn crop to be saved for use as food, but that is hardly an option. The result would be even higher fuel prices. Fuel prices affect farmers most of all, so we would end up with higher food prices anyway.

It takes several pounds of grain to make a pound of meat or milk, so prices for those commodities will be going up also. Already, beef prices are up about 20 percent from last year. Milk prices, lower because of massive overproduction last year, will eventually go back up as dairy farmers produce less.

Wednesday, February 9, 2011

The reconstruction effort in Afghanistan has been a frustrating process, plagued by sabotage, corruption, and the ever-present threat of violence by the criminal gangs that used to run the country. It has been carried on this long only because it is so important. The essential functions of a nation can’t be carried out without the technology to tie things together, starting with things as basic as roads.

But the reconstruction will have to stop soon whether it is finished or not, a point President Hamid Karzai made yesterday. If foreign reconstruction teams are the focal points of stability and progress in Afghanistan for years to come, Afghanistan will not resemble a nation so much as a set of colonies squabbling with each other. The best hope for stability, peace, and freedom in Afghanistan is if the people get together in Kabul and decide what to do.

It could be said that the government in Afghanistan doesn’t have the resources to carry out its mission very well at this point. Yet the North American and European countries that have provided most of the firepower in Afghanistan probably do not have the resources to keep troops there for another five years either. So there is little choice but to begin handing the country over to the government security forces that, for the most part, do not exist yet. The government may not be in a position to maintain its own roads yet either, but it will have to attempt that too, and there is every reason to hope that it will be successful in the end.

Tuesday, February 8, 2011

U.S. consumer credit card debt increased in December after declining for more than two years. I wouldn’t take this one-month reversal as an indication of a new trend, though. We know that consumer spending in December is different from other months of the year. Also, there isn’t much else to support the idea that consumers have changed their minds about credit. However, there are indications that banks are becoming slightly less reluctant to lend to consumers, approving more credit cards, sometimes with higher credit limits. It remains to be seen whether that is a one-time adjustment in underwriting standards or will lead to further easing from banks.

Monday, February 7, 2011

That might be the gist of the conversation this morning as people try to run through their annual discussion of the Super Bowl broadcast. Part of it, I am sure, is that the crowds of people watching the game may not have been paying as much attention to the television as in years past, but I have to think that the main reason people aren’t talking about the ads so much today is that the ads themselves weren’t so effective.

Advertiser attempts to be controversial were relatively transparent, with viewers perhaps becoming a bit more savvy about that. Celebrity placements certainly got some fans’ attention — fans of those celebrities, that is — but weren’t startling enough to make people ask, “How could they do that?” — or any questions at all, for that matter.

It was always a bit of a stretch to use the creative content of television advertising as a starting point for conversation, but the super bowl ad blogs are looking especially thin and pretentious today. Advertisers may take this as just another sign of a long-term trend: it is getting harder and harder to get people’s attention.

Sunday, February 6, 2011

Few could miss the economic symbolism of the two team names in this year‘s Super Bowl. It is not just that these are two of the old-time teams in the NFL — no other team names in the league say “a long day of physical labor” the way “Steelers” and “Packers” do. It’s a fitting symbol for a country where people are working harder than ever right now, and for rewards that are more uncertain than we have seen in a lifetime.

The advertising sponsors for the Super Bowl, though, are decidedly more light and fluffy than we have ever seen. I’m sure viewers have gotten used to seeing corn chips alongside the beer and pickup trucks, but the presenting sponsor this year is in the pizza business, and some of the more prominent advertisers in the run-up to the game have included cookies and designer soft drinks. Some of the biggest stars appearing in the commercials during the game broadcast will reportedly be promoting video game controllers and flowers.

Flowers? Well, it makes some sense if you consider that the Super Bowl is happening closer to Valentine’s Day than ever before, but it is still a stark change in image for the NFL. The league made itself “hard-hitting” to sell beer and pickup trucks, and now it may have to put more emphasis on fluffier attributes such as “slick” and “smart” if it wants to sell flowers and cookies. This change in image makes its way into the game itself. I’m sure it is a small part of the reason for the league’s increased enforcement emphasis on rules intended to reduce the risk of injury. When players get seriously hurt playing a game, that doesn’t look very slick or smart.

Saturday, February 5, 2011

After a record set in December, the median Arctic ice extent for January was the lowest January extent ever recorded, according to the NSIDC, and I have to say that I didn’t see this one coming. True, the ice extent at the beginning of the month was an apparent record low for that day of the year, but the ice was growing at a healthy pace that should have pushed it past the previous low of 2006. But then it paused for a week, and that was just enough to turn the month into a new record.

The main difference was seen in eastern Canada. Ice in the Hudson Bay developed later than ever, but at least Hudson Bay is now ice-covered. Ice never did arrive along the Labrador coast, a curious situation that we have never seen before. At this time of year, the entire length of the Labrador coast ought to be the site of heavy ice cover stretching 200 kilometers from shore. Instead, nothing. Well, finally this week, there is a limited area of ice hugging part of the coastline, but out on the Labrador Sea, open water everywhere you look. With the return of daylight, it is probably too late in the season for ice to form as far south as Labrador, but even if it does, it will melt away soon — the melting season is just one month away.

Friday, February 4, 2011

One of the world’s banks now owns one of the world’s largest record companies: Citibank has taken control of EMI. This is a consequence of a failed 2007 leveraged buyout of the record company, which Citibank financed. After the buyout, the record company couldn’t manage to make enough money to keep going. The buyers lost all the money they put in, £1.7 billion. Citi, for its part, has already recorded a loss of £2.2 billion on the deal, which is nearly the entire balance of its loan. Citi does not really want to be in the record business, and will try to take a hands-off approach to the management at EMI, and sell it to a new owner when it gets a chance to do so. In the meantime, EMI is sure to lose some of its important recording artists, who may not like the image of working for a bank. The Rolling Stones, Radiohead, and Joss Stone had already left EMI since the buyout, with complaints that the company had become too money-oriented to function in a creative industry.

Three small bank failures occurred tonight. These banks had deposits under $250 million, and were closed by state banking regulators.

Thursday, February 3, 2011

Another long rail tunnel is in the works, with a parliamentary committee in Denmark recommending plans to build a 19-kilometer tunnel between Denmark and Germany. Construction is expected to take place between 2014 and 2020. Cost was part of the consideration, with engineers estimating that the tunnel will cost $7 billion to build, slightly less than the cost of a bridge. The tunnel will also contain a 4-lane highway, and will take 2 hours off the travel time between Germany and Sweden.

Eventually, I believe rail tunnels will be needed to connect the world’s major cities, in the same way that cities are now served by airports and seaports. I am encouraged at the prospects for this by the fact that tunnels are being built in some of the most difficult places first.

Wednesday, February 2, 2011

Two weeks ago, I proposed that a series of severe storm forecasts could stimulate the economy by boosting consumer spending. The storm preparation spending, like the Christmas spending a month before, would be large enough to lift the whole economy.

Having seen this come to pass, I can now say that there were two problems with this formulation. First, the production lost during the actual storm and its aftermath may be larger than the boost from the preparatory spending. Most of the workers in my local area today, if they get to work at all, will arrive late and distracted because of the ice on the ground and the roads. In other areas, to the north and west, workers will wait for two or three days for the snow plows to clear all the streets. This loss of production, whenever people wait out adverse weather conditions for hours or days, is a substantial effect.

Second, storm preparation fatigue sets in faster than I had counted on. People who had energetically prepared for two major storms in three weeks didn’t exactly go all-out to prepare for the third storm, and basically shrugged off the fourth one. Diminishing effect is a problem with all forms of stimulus, when attempted on a large scale. As you go along, the effect gets smaller and smaller, eventually becoming too small to care about.

Tuesday, February 1, 2011

Large-scale weather events in two countries half a world apart threaten to overshadow the other news of this week. In Australia, a category 5 cyclone will hit the Queensland coast with a broad area of high winds. Cyclone Yasi at this point could be compared in U.S. terms to Hurricane Andrew, which struck south of Miami in 1992, but Yasi is expected to expand and strengthen before it crosses the coast tomorrow, making it one of the most intense cyclones ever recorded in Australia.

In the United States, an unusually large storm is stretching from Arizona to Maine, with severe thunderstorms to the south, blizzard conditions to the north, and large areas of ice accumulation in between. What is especially noteworthy about this storm is the large area being affected — more than half of the United States, along with the major cities of eastern Canada. Usually, when ice and snow take out power lines, electric companies can call in extra help from other areas to restore power faster. That may not be possible this time.

One indication of the extent of the storm is the strain on the National Weather Service’s web site, which has been slowed down by the intense concern over the weather forecasts and warnings in areas that include half the people in the country.

In my local area, the latest forecast calls for 0.3 to 0.7 inches of ice accumulation. The 0.7 inch threshold is significant; that is the amount of ice that may begin to bring down ordinary utility lines, a worrisome scenario in which it may take power companies weeks to restore power to everyone. I can only hope that the ice will be less than this, but even with a lesser amount of ice, there is a significant chance that I could be without power for a day or so.

Media reports of these large-scale weather events don’t do justice to the economic disruptions they create. A lesser storm that hit the eastern United States just after Christmas was enough to ruin retailers’ sales reports for the month of December. In the worst-case scenario, the current storm could reduce the United States’ total production for the quarter by 2 percent, more than enough to cause hand-wringing among the people trying to manage the economy. And as for Queensland, it has already had the worst season of weather in its history this summer. With more high winds and flooding affecting most of the state in the coming days, it is fair to say that it will never be the same again.